Market Trends: The cost of new homes will rise by 7 per cent this year says a new report on the market. Justin Comiskey reports

A recent report on the outlook for the property market predicts that the cost of new homes will increase by 7 per cent in 2004.

The Hooke & MacDonald Annual Review & Outlook 2004 notes that continuing improvement in the supply of new homes, where 69,000 were built in 2003 and another 70,000 are forecast for 2004, should help to moderate price growth nationwide.

However, demand for new homes in Dublin - estimated at around 23,000 units a year - is far greater than supply, which the report says was 14,500 in 2003 and likely to be 16,500 in 2004. This situation will put upward pressure on prices into the medium term.

House prices increased nationally by 14 per cent in 2003, with new homes up 11 per cent, but prices for second-hand homes were more volatile during the year, according to the report. "With very strong demand for existing properties in premium locations - Dublin 4 & 6 and part of south Co Dublin - and substantial activity among people trading up, the second-hand market experienced growth rates of just over 14 per cent in Dublin."

The report also suggests that the composition of supply is changing, particularly in Dublin, where an increasing number of new homes are being built below the 125 sq m (1,345 sq ft) stamp duty limit. This is being fuelled by first-time buyer demand.

"Many new housing development coming to the market in suburban areas include two and three-bedroom townhouses, with fewer semi-detached and detached homes being built. One- and two-bedroom units now account for the majority of new apartments coming to the market, with fewer three-bedroom units being required and built," the report states.

As a result of more smaller units being built, the figures for new home completions over-estimate the real rate of increase in supply. "While the number of new home completions has increased significantly in recent years, the number of new bed spaces has not grown as quickly," the report states. "A trend towards more compact units - given demographic changes and smaller households - will require the industry to maintain completions in the region of 65,000-70,000 over the medium term in order to satisfy demand."

Launching the report, Ken MacDonald, managing director of Hooke & MacDonald, said that "the Irish residential property market has entered a new phase of moderate price growth and greater stability. Significant inroads have been made in improving the supply of new homes, which is allowing the market move towards equilibrium, apart from in Dublin. The key drivers of demand that have been present in the market over the last decade - favourable economic conditions, positive demographic factors and employment creation - should remain during 2004 and for a number of years to come."

The report highlights concerns about the supply of new homes in Dublin. "Research shows that the potential supply of new housing units in the city centre is in the region of 19,000. If the building sector continues to operate at existing levels, this potential will be exhausted in eight years time, placing greater pressure on prices of second-hand homes in the city centre and on new homes in suburban locations in the years to come."

Geoff Tucker, an economist with Hooke & MacDonald, noted in the report that Docklands represents a real opportunity to introduce tall buildings to the city. Unless progress is made on this issue, he states, this window of opportunity will soon be closed.

The report rejects recent claims that one-third of new residential properties are being bought as second homes and suggests that the figure for Dublin is less than 10 per cent.

Other forecasts in the report include: strong demand and limited supply will see rental values for high-spec accommodation, particularly in Dublin city centre, increase by 5 per cent in 2004; the market for development land looks set to remain strong in 2004, particularly in Dublin where rezoned land within forthcoming revised development plans will generate activity.

Copies of The Hooke & MacDonald Annual Review & Outlook 2004 are available from the company's offices at 118 Lower Baggot Street, Dublin 2 or can be downloaded from the company's website at www.hookemacdonald.ie. The report is free.